A Lesson from the South for Fiscal Policy in the US and Other Advanced Countries
37 Pages Posted: 11 Jun 2011
Date Written: February 2, 2011
Abstract
American fiscal policy has been procyclical: Washington wasted the expansion period 2001-2007 by running budget deficits, but by 2011 had come to feel constrained by inherited debt to withdraw fiscal stimulus. Chile has achieved countercyclical fiscal policy – saving in booms and easing in recession – during the same decade that rich countries forgot how to do so. Chile has a rule that targets a structural budget balance. But rules are not credible by themselves. In Europe and the U.S., official forecasts are overly optimistic in booms; so revenue is spent rather than saved. Chile avoids such wishful thinking by having independent panels of experts decide what is structural and what is cyclical.
Keywords: budget rules, copper, Chile, commodity boom, countercyclical, fiscal, forecast, structural budget, institutions, procyclical, Stability and Growth Pact, United States
JEL Classification: E62, F41, H50, O54
Suggested Citation: Suggested Citation
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